Tuesday, 19 January 2016

General Ledger Accounting

What is a General Ledger

A general ledger (GL) is a record that keeps track of a business' transactions.All transactions relate to a company's assets, its liabilities, expenses, revenues and owner's equity. It contains both financial and non-financial data for a company. In ERP systems, GL is a database of all modules such as accounts receivables, accounts payable, cash management, procurement, projects and fixed assets.

GL is divided into two segments ie debits and credits.

Debit is recorded on the left hand side of the ledger while credit on the right hand side. A rise in an asset or its account is debit while a rise in a liability or its account is credit. Also a decline to an asset account is credit while a decline in liability is debit. Further a decline in income is debit while a decline in expense is credit. Also a rise in income is credit while a rise in expense is debit. A rise in equity is credit while a decline in equity is debit.

If an account is debited then another is credited in an effort to keep both sides equal, thereby keeping the GL balanced.If GL is not balanced on both sides then it means, an error has occurred.It can also be said that the difference between the total credits and the total debits in a single account is the account's balance.If debits surpass credits then it is said that it is a debit balance but if credits exceed debits then it is said that it is a credit balance.

GL is based on the formula :Assets=liabilities + Shareholder's equity

The ledger should comprise balance for each account, a description associated with it and a date. Segregated into seven segments, it consists of assets, liabilities, revenue, expenses, profit and losses and owner's equity.

In large entities, GL can be quite lengthy and can take several hours to be prepared.